Does the Size of Your Mortgage Determine the Cost of Your Home Insurance?

Unless you’ve built up substantial equity over the years and can afford to pay for a home in cash, you’ll need to take out a mortgage. Mortgage lenders want to ensure that their investment is protected in case something were to happen to your home. That’s why most require that you have home insurance in place before they’ll approve your mortgage.

Of course, the cost of home insurance varies from home to home, depending on a variety of factors. One factor many people believe is responsible for determining their rate is the cost and value of the home they are insuring.

It makes sense that a more valuable home requires a greater degree of protection. For example, all other things being equal, a house that costs $600K will be more to insure than a house that costs $200K, right? Actually, no.

Generally speaking, the cost of the home does not contribute to the cost of its insurance.

“The size of your mortgage will not affect the price of your home insurance,” says Sean Schumacher, a mortgage agent atSafebridge Financial Group. But if you have a second mortgage on your property, that’s when it could affect the home insurance premiums you pay.

“If you have a second mortgage, in addition to the first mortgage, they may inquire further, specifically if it is from a private lender. The insurance company will start asking more questions at that point to understand the full picture. If you are over leveraged and have very little equity in the home or are under financial stress, it could affect how well you care for the property. In this scenario it could affect your insurance pricing,” says Schumacher. As previously established, most lenders require adequate home insurance coverage before they’ll approve your mortgage, but what’s considered “adequate” varies between lenders.

“The mortgage provider needs to make sure the insurance coverage is adequate since it's protecting their security and they are listed as the beneficiary. Sometimes the ultra-cheap insurance doesn't provide adequate coverage related to the full replacement value of the home and the borrower has to upgrade,” explains Schumacher. “Different mortgage lenders require different minimum coverages as well, but that doesn’t directly relate to mortgage size versus coverage pricing.”

What does affect the price of your home insurance?

The size of your mortgage may not affect the price of your home insurance, but there are many factors that do. For example, the location of your home plays a central role. Your insurance company can look at the history of homes in your neighbourhood to see how likely you are to file a claim. Other factors considered in the pricing of your home insurance include replacement cost, heating, electricity, pipes, and the age of your roof.